Bankruptcy Does Not Destroy Future Financial Health, Crushing Debt Does

February 24th, 2009 by Reed Allmand

According to an article in the Dallas Morning News, an opponent of bankruptcy reform that would help homeowners save their homes from foreclosure claims that bankruptcy is a “black mark” against borrowers and unlikely to help them.

David Kittle, Chairman of the Mortgage Bankers Association said:

“Our fear is that any borrower who can’t be helped by this [Obama mortgage relief] program will have a hard time being helped by bankruptcy,” he said. “So their bankruptcy plan will fail, they will lose their home anyway, and will now be stuck with the black mark of bankruptcy on their record, inhibiting their ability to buy or rent a home in the future.”

The real problem is that many homeowners facing foreclosure are being crushed by mortgage payments that are not affordable and that often don’t represent the true value of the home. Many homeowners facing foreclosure are unable to refinance ARMs that have reset to 2 to 3 times the original mortgage monthly original mortgage monthly payment. These loans need to be modified either by banks or by bankruptcy courts so that we can stop the massive destruction of American wealth through foreclosure. Filing bankruptcy is not a “black mark” that Mr. Kittle’s statement would suggest. The fact that someone filed bankruptcy sends a clear indicator that they are willing to face their financial difficulties head on and take appropriate action even if it is not the ideal outcome they originally envisioned. What is a “black mark” against debtors is allowing delinquent debts to go unaddressed for months or even years. Bankruptcy helps debtors, including those facing foreclosure get back on their feet and onto the road of financial health.